Administration, Documentation

SMSFA calls for TBC simplification


All member transfer balance caps should be aligned to the general cap to reduce costs and confusion brought on by indexation, according to the SMSF Association.

The current confusion surrounding transfer balance caps (TBC) can be solved by aligning those of superannuation fund members with the general TBC, according to the SMSF Association (SMSFA), which has also called on the government to reduce the number of total super balance (TSB) thresholds.

The SMSFA made the calls as part of its 2022/23 budget submission to Treasury, stating the simplification of TBCs was its primary recommendation to government after the introduction of indexation on 1 July 2021 added greater complexity to the superannuation system.

The submission stated that aligning superannuants’ TBC with the general TBC would provide certainty while reducing costs for funds and members and simplifying the administration required by the ATO, financial advisers, SMSF administrators and fund members.

“Indexing the TBC in this manner ensures that superannuation members in retirement are not disadvantaged by the impacts of inflation, allowing members to retain more in the retirement phase, including on the death of a spouse,” the submission stated.

“The costs of allowing broad application of TBC indexation and the incremental loss of tax revenue are not expected to be significant, particularly when we consider the ongoing costs of indexation, including the costs of administration and complex system redesign. These system costs will be incurred each time indexation falls due.”

Association chief executive John Maroney said: “The system has shifted from having a single cap to individual caps ranging from $1.6 to $1.7 million. This is causing confusion and increased costs across the sector. Inevitably, mistakes will be made, leading to inadvertent breaches of the TBC. This situation is being compounded by the lack of access for financial advisers and SMSF administrators to the ATO reports that are needed to obtain an individual’s TBC.

“In our opinion the use of a single cap will reduce costs, uncertainty and benefit all stakeholders – a position, we believe, is strongly supported across the SMSF sector.”

In calling for the simplification of TSB limits, the SMSFA submission recommended the removal of the $1 million TSB threshold for transfer balance account reporting, the removal of the $1.48 million and $1.59 million TSB bring-forward non-concessional contribution (NCC) thresholds and aligning the disregarded small fund assets threshold to the general TBC.

The submission stated removing the $1 million TSB threshold would have the effect of requiring all SMSF trustees to report events affecting member transfer balances within 28 days after the end of the quarter in which the event occurs, while the removal of the $1.48 million and $1.59 million TSB bring-forward NCC threshold will result in the use of one single $1.7 million threshold, with NCCs, spousal and co-contributions aligned with the general TBC.

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